The Relationship Between LPR, Bank Interest Rate and Real Estate Prices in Shanghai

Abstract

The real estate market is a crucial pillar of the national economy. As an international financial center, Shanghai boasts a highly active real estate market with distinct price fluctuations, becoming a key area for regulatory policies. Interest rates, as core macroeconomic regulation tools, including traditional bank lending rates and the Loan Prime Rate (LPR) since its 2019 reform, exert significant impacts on real estate prices through the transmission mechanisms of the IS-LM model and credit rationing theory. The 2019 LPR reform has formed a "dual interest rate system", but the combined impacts, effect differences and synergistic effects of the two rates on Shanghai’s real estate prices have not been systematically explored based on classic economic theories. Based on Shanghai’s time-series data from 2001 to 2024, this work constructs an econometric model combined with relevant theories to empirically analyze the impact mechanism of the dual interest rates on Shanghai’s real estate prices. The results indicate that both rates have significant negative impacts on Shanghai’s housing prices and exhibit synergistic regulatory effects; the LPR has a stronger impact on housing prices with an elasticity coefficient of -3.5, higher than that of traditional bank lending rates (-2.8); the transmission lag of LPR is 2–3 quarters, while that of traditional bank lending rates is 3–4 quarters; purchase restriction policies and land supply can significantly weaken the impact of interest rates on real estate prices. This study fills the research gap in the impact of the "dual interest rate system" on real estate prices in megacities after the LPR reform, provides quantitative references for optimizing the interest rate regulation policy of Shanghai’s real estate market, and offers a reference for real estate regulation in similar cities.